Landowners Eye Big Cash Rents

Landowners Eye Big Cash Rents

Some aren't considering what happened this year or how high input costs are.

This won't make you feel any better if you're a tenant farming cash rent land and one or more landowners is asking for more rent for 2012, but at least you ought to know that you're not alone. One farmer tells us one of his primary landowners is asking for significantly higher rent for average land for 2012. It leaves the tenant with tough decisions to make. He's looking for options.

One factor influencing cash rents is who controls the land. In many cases the older generation who typically was more understanding and a generation closer to the land than the heirs they have or will leave the ground too, are either passed away or no longer able of taking care of their own business affairs. In some situations, the heirs may not really want to hold onto the land, and may sell. In other cases, they may not want to sell, but don't really understand agriculture either. In that case, they may expect that they can ask a higher rent and receive it because prices are higher for commodities.

They are higher, but not as high as they were six weeks to two months ago, notes Chris Hurt, Purdue University ag economist. "It's hard to understand why soybeans were $14 per bushel a few weeks ago and now they're just above $11 per bushel at the farm gate," he says.

If it's hard for an expert to understand, it may be unintelligible to an heir who knows nothing about farming. They likely hear the high reports of spiking prices because they make the news, but they may not hear about the prices once they sink to lower levels.

The other factor many landowners seem to be missing are record high input costs. Data based on a large set of records kept by Illinois farmers and processed through the University of Illinois' recordkeeping service, indicates that input costs to grow crops are at all-time highs. Fertilizer prices may move up and down, but overall, they are at the higher end of historical fertilizer prices. The Illinois survey had corn production input costs pegged at from $3.50 to over $4 per bushel. It was only in recent years that corn prices even approached those levels, allowing tenants to turn a reasonable profit.

The moral of this story? Make sure landowners understand your inputs and risks when they're asking for higher rents.


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